Credible Threats

"Your money or your life" is a classic threat issued by an armed robber and it is one that law is prepared to penalize, much as it punishes and discourages its grimmer relative, attempted murder. The sanction may occasionally do more harm than good, but for the most part the law’s treatment of such serious threats is sensible. In contrast, “If you do not lower the price of that automobile I hope to buy, I will never return to this dealership” is a threat that law ignores. The buyer is free to return the next day and reveal that the threat was a bluff. In the commercial case a threat often contains valuable information; some threat-making buyers are not bluffing, and some sellers would like to recognize them. In turn, these buyers may wish to be identified and they might do so if their threats were perceived to be credible. They would like the seller to know that they are serious; they hope for a better price today by being bound not to return tomorrow. This Article suggests that some threats are better than others, and that there is a good case to be made for legal intervention on their behalf, though it is possible that there are third-party effects that weaken the case for improving the credibility of these threats. Threats, like other assurances, are signals, and in some cases the value of a signal is high enough to justify legal support rather than discouragement or indifference. As it turns out, the best remedy in support of this idea may be to put the nonthreatening party at risk in the event that it enters into an arrangement that the threat-maker previously forswore.

The analysis develops the ingredients for credibility in commercial, criminal, and international contexts, including the cost of executing a threat, the role of repeat play, and the calculus of what we call secondary credibility – the likelihood that a threat will be carried out even though the target complies and the danger that compliance will bring about another threat. It then turns to situations in which a threat-maker can enhance credibility by proceeding in stages; a threat is often more credible if its execution has begun, so that the marginal cost of completion is modest, and lower than the direct benefit expected from the target’s compliance. The discussion shows that law itself, where designed to discourage threats and their execution, can perversely contribute to threat-making by constituting just such a sunk cost, or first stage of a multi-stage process.

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The paper has not yet been published; this page will be updated when it is available online.